Russian Equities Weekly 28/01-01/02/2019

05.02.2019

The Russian equity market edged into the black last week. Global markets rose as well: the MSCI EM index gained 1.7% and the MSCI World rose by 1.4% in US dollar terms. The partial recovery in crude oil prices and the official lifting of US sanctions on Russian public companies supported investor sentiment.

Russian equity market dynamics

The Russian equity market edged into the black last week. Global markets rose as well: the MSCI EM index gained 1.7% and the MSCI World rose by 1.4% in US dollar terms. The partial recovery in crude oil prices and the official lifting of US sanctions on Russian public companies supported investor sentiment. Brent crude rose by 2.3% in US dollars over the week on the news that Saudi Arabia’s exports to the US had dropped to their lowest since 2010. Additionally, the US imposed sanctions on Venezuela’s state oil company, which could disrupt supply. This should support oil prices. Meanwhile, the US Treasury officially lifted sanctions on publicly listed companies Rusal and EN+. Please read our flash note for more insights.

Companies in the financial services sector outperformed the market. Financial stocks had underperformed in 2018, but have been catching up with the market since the beginning of this year. VTB, Sberbank and Moscow Exchange were the leaders: their shares rose by 2.6%, 2.2% and 2.0%, respectively, in rouble terms.

Main Russian news

Rosstat reported that the Russian construction industry grew by 5.3% in 2018, marking the fastest pace over the last 10 years. The news took analysts by surprise: over January-November 2018, construction had grown by only 0.5% YoY. According to a head of the construction statistics department, the acceleration was due to a revision of figures across several regions. Many companies were late to provide Rosstat with figures, while they also provided data with mistakes or did not share information at all. Overall, the revision was mainly due to Rosstat receiving updates from contractor companies working with Novatek (on the Yamal LNG project), Rosneft, Surgutneftegas and Gazprom. Nonetheless, such a revision is atypical for Rosstat and the government plans to implement legislation which should introduce penalties for late or not fully disclosed information from the contractor companies.

The CBR said that GDP growth in 2018 could be close to 2%, while its official forecast had ranged between 1.5% and 2%. The statement was made after Rosstat made adjustments in the construction segment, mentioned above. As such, the Ministry of Economy also revised its figures: it expects GDP to have grown by 2% over 2018, while its previous forecast was for 1.8%. The CBR had said in December that economic activity had decelerated: external demand and investment activity were weaker than in previous months, while consumer demand grew only modestly. The regulator expects consumer activity to weaken in the first few months of 2019 due to the increase in VAT. This could result in slower-than-expected GDP growth in the first quarter.

The central bank also reported the results of its work on illegal cash withdrawals and dubious transactions. In 2018, the cashing in of money dropped to about USD 2.8 billion from USD 5.5 billion in 2017, while the volume of transit banking operations fell to USD 21 billion from USD 43 billion. Since 2013, the CBR has been taking measures against dubious banking operations: it detected and closed numerous fly-by-night companies and withdrew licences of banks which were suspected of illegal transactions. Moreover, it became more difficult for Russian citizens to work with foreign banks. Eventually, the volumes of dubious transactions accounted for USD 123 million over the first nine months of 2018 compared to USD 38.8 billion by the end of 2012.

This material is produced for information purposes only and does not constitute: 1. An offer to buy nor a solicitation to sell, nor shall it form the basis of or be relied upon in connection with any contract or commitment whatsoever or 2. Any investment advice. Opinions included in this material constitute the judgment of TKB Investment Partners (LLC) at the time specified and may be subject to change without notice. TKB Investment Partners (LLC) is not obliged to update or alter the information or opinions contained within this material. Investors should consult their own legal and tax advisors in respect of legal, accounting, domicile and tax advice prior to investing in the Financial Instrument(s) in order to make an independent determination of the suitability and consequences of an investment therein, if permitted. Please note that different types of investments, if contained within this material, involve varying degrees of risk and there can be no assurance that any specific investment may either be suitable, appropriate or profitable for a client or prospective client’s investment portfolio. Given the economic and market risks, there can be no assurance that any investment strategy or strategies mentioned herein will achieve its/their investment objectives. This material shall not be considered as any kind of a guarantee or a promise of the future effectiveness (profitability or break-even) of investment activity. Results of investments in the past shall not be considered as a guarantee of such results in future. All past performance date have documental confirmation. There are no guarantees of profits or returns from financial instruments unless otherwise clearly indicated in respective prospectus. Returns may be affected by, amongst other things, investment strategies or objectives of the financial instrument(s) and material market and economic conditions, including interest rates, market terms and general market conditions. The different strategies applied to the financial instruments may have a significant effect on the results portrayed in this material. The value of an investment account may decline as well as rise. Investors may not get back the amount they originally invested.

The performance data, as applicable, reflected in this material, do not take into account the commissions, costs incurred on the issue and redemption and taxes.

TKB Investment Partners (LLC) is the legal entity registered under laws of the Russian Federation with the principal state registration number (OGRN) 1077847028280, having its registered address at: 69/71, lit. A, Marata street, Saint-Petersburg, 191119, Russia.